Under Indian Laws, gift tax was payable by the donor up to 30th September 1998, The Gift Tax Act, 1958 was repealed with effect from 1st October 1998 and therefore, there is no gift tax on gifts made on or after that date. Indian law allows NRIs to gift anything to one’s relatives as long as they have the capacity to buy those gifts and the gifts are genuine.
Gifts by NRIs: Definition of Relatives in Indian Laws
Indian laws define relatives as:
- Spouse of the individual.
- Brother or sister of the individual or of the spouse of the individual.
- Brother or sister of the either of the parents of the individual.
- Any lineal ascendant or descendant of the individual.
- Any lineal ascendant or descendant of the spouse of the individual.
- Spouse of the persons referred in second to fifth categories.
However, what is mandatory is an offer to make a gift by the NRI and an acceptance by the resident Indian. To avoid any kind of legal hassles, either the receiver should seek a gift from the donor or the NRI should offer to make a gift. Another important point to remember is that the gift tax exemption will not be available to an NRI if he loses his special status on account of overstaying in India during the tax relevant year.
Gift by NRIs: Tax Treatment under Indian Laws
Indian laws specify certain rules regarding the treatment of gifts made by the NRIs:
- In the case of gifts made by an NRI to his/ her spouse, minor children or son’s wife will involve the clubbing of income and wealth in the hands of the donor that is the NRI.
- In the case of gifts to minor children, the clubbing of income, as mentioned in the above case, will cease once the children attain the age of 18 years.
- The clubbing provisions apply in the case of gift by an NRI to spouse or son’s wife in India only up to the first stage of the income from the original gift. In the second stage, any income arising from investments of the income from original gift are not clubbed. So, they constitute the separate income or wealth of donee.
- All gifts received by the residents of India from NRIs are exempt from any kind of tax, provided the recipient provides evidence regarding the identity and the financial capacity of the donor and the genuineness of the gift.
- As per the Foreign Exchange Management Act, 1999 (FEMA), a resident donee does not need to take any permission from the Reserve Bank of India to hold gifted immovable property outside India, provided the said property is gifted by an NRI.
- However, general permission subject to certain conditions is granted by the RBI to resident donees to hold foreign moveable properties such as shares and securities gifted by NRI donors.
Gifts by NRIs: Indian Laws on Income from Other Source
Gift tax does not apply in the case of any sum or money or gift received:
- On the occasion of the marriage of the individual.
- Under a will or by way of inheritance.
- In contemplation of the death of the payer.
NRIs can also make gifts to their non relatives. However, the limit in such cases is Rs 50,000.